Name: Insights: Warren Buffett on When to Dump a Bad Business
Uploaded: 2020-02-07
Duration: 3 min 16 s
Description: The legendary investor spoke with FORTUNE October 2014.

 I went in the textile business by accident in 1965, and I threw in the towel about 20 years later, and that was about 20 years too late. There's a great tendency to want to hold on, justify old decisions. I mean, that's a human trait. But when you really know you've got a bad business is when you have a good manager and you're getting bad results. I mean, when you're getting bad results with a bad manager, you still have to examine the question of whether you can get better results if you got a better manager. Usually you can't. I've said in the past that when a management with a reputation for excellence encounters a business with a reputation for bad economics, it's the reputation of the business that remains intact. And I've proved that many times. There are businesses that are just plain tough. There may be too many competitors, but there's reasons why they don't drop out. There's reasons-- Well, we started out in textiles, and we made over half of the linings for men's suits in the country. And we went through World War II and got awards, and Sears Roebuck named as their supplier of the year and all of that sort of thing. And then we'd say, well, we'd like to increase the price of these linings a quarter of a cent a yard and Sears said, you must be out of your mind. There's ten other guys that will sell it to us at the old price. And nobody ever went into a Sears store and said, I'd like a blue Serge suit with a Hathaway lining. It didn't exist. We had no connection to the consumer. And there are lots of lousy businesses, and there's lots of wonderful businesses, and my job over the years has been to try and figure out which is which. And I made plenty of mistakes. I bought a company called Dexter Shoes in the early 90s. I paid $400-plus million for it, and it made a lot of money before I bought it. But as soon as I bought it, they pulled some switch or something and it immediately started losing money. And it was because of foreign competition and so on, or maybe because I owned it, I don't know. And it went to zero. And the worst thing was that I paid for it in stock, so that $400 million in stock I gave at the time is now worth about $5 billion. So every time Berkshire stock goes down, I feel a little bit better because of my opportunity lost on this business. But when I looked at Dexter Shoe, they had a good position in retailers, they turned out good shoes, they had a great workforce, all kinds of things. But I just forgot one thing, that they weren't going to make shoes in the United States anymore. So you make mistakes, and it does pay to recognize quickly when you've made them. If you've got a good person running a business and it isn't making any money, you're in the wrong business, and you've got to face up to that. 

Insights: Warren Buffett on When to Dump a Bad Business

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The legendary investor spoke with FORTUNE October 2014.

Warren Buffett on When to Dump a Bad Business

I went the textile business by accident in 1965 and I threw in the towel about 20 years later, and that was about 20 years too late. There's a great tendency to wantto hold on justify old decisions. I mean, it's a human human trait. And, uh, what, when you really know you've got a bad business is when you have a good manager and you're getting bad results. I mean, when you getting bad results with a bad manager, you still have to work. Examine the question of whether you know you could get better results if you got a better manager. Usually you can't. You know, I said in the past, you know, when a when a management with a reputation for excellence, encounters of business, with a reputation for bad economics. It's the reputation of the business that remains intact, and and I have proved that many times there are businesses that are just playing tough, you know, and there's the they There may be too many competitors, but there's a reason why they don't drop out. There's reasons way start out in textiles, and we made over half of the linings for men's suits in the country and way went through World War two and got awards and and Here's Robot named us there, Supplier of the year and all of that sort of thing. And then we'd say what we'd like to increase the price of of these linings 1/4 of a century art answers out of your mind. Or send other guys. It will sell it to us of the old price. And nobody ever went into a store and said, I'd like a a blue Serge Serge, a blue shirt Serge suit with 1/2 away lining. It didn't exist. We had no connection to the consumer. And there are lots of lousy businesses and there's lots of wonderful businesses, and my job over the years has been destroying figure out, which is which, and I've made plenty of mistakes. I bought a company called Texture Shoes in the early nineties. I paid 400 plus $1,000,000 for it, and it made our money before I bought it. But because I bought it, they pulled some switch or something immediately, started losing money, and, uh, and it was because of foreign competition so under because I own the eternal and it went to zero. And the worst thing was that I paid for it in stock. So that 400 million in stock I gave at the time is, uh, now worth about five billion. Uh, so, uh, every time Berkshire stock goes down, I feel a little bit better because of my opportunity. Lost business. But, you know, when I looked at Dexter Shoe, they had a good position in retailers. They turned out good shoes, had a great work force, all kinds of things. But I just forgot one thing that then we're gonna make shoes in United States anymore. So you make you make mistakes, and it does pay to recognize quickly when you made him. If you've got a good person running a business and it isn't making any money, uh, you know, you're in the wrong business and you've got to face up to that